Enables the company's management to create a firm-specific business model
A SWOT analysis enables the company's management to create a firm-specific business model that will best align, fit or match the organizational resources and capabilities to the demands of the environment in which it operates.
It helps with both strategic planning and decision making as it introduces opportunities to corporates as a forward-looking bridge to decide upon strategic alternatives.
SWOT represents Strengths, Weaknesses, Opportunities Threats.
A technique used to help a person, product, place, or even an organization to identify strengths, weaknesses, opportunities, and threats relating to the business competition or project planning.
It locates within the areas of a business that are preserving, or competitors can even exploit if protection is not held.
Strategic managers compare and contrast the various alternative possible strategies against each other with respect to their ability to accomplish predominant goals. Thinking strategically, they are required to identify the set of strategies that will create and sustain competitive advantage:
Functional-Level Strategy: Supports improving the effectiveness of the operations within the organizations.
Global Strategy: This addresses how to expand the operations outside the home country to grow and prosper where competitive advantage is on a global level.
Corporate-Level Strategy: It explains the primary queries of what a business or businesses should be into maximizing the long-run profitability of an organization and how an individual can enter and build a competitive advantage for these businesses.
Business-Level Strategy: This includes the overall business competitive theme in how it positions itself in the marketplace to gain a competitive advantage over the others and different ways to position its strategies that could be used in different industries.
It is a tool used in an organization to examine the internal and external environmental factors of an organization - what is going on inside and outside, where some can be controlled and some not.
For example, you may be familiar with numerous of an organization's strengths, but until you discover them with weaknesses and threats, you would possibly not realize how unreliable those strengths actually were.
You would likely have reasonable concerns about some of your business weaknesses, but by going through an analysis systematically, you will be able to find the opportunity which was previously ignored that could be overcompensated.
Significance of SWOT Analysis
It provides a logical framework for a systematic and sound thrashing issue on a business situation, generating strategic alternatives, and choosing a strategy.
The variation in managers' interpretation of the organizational strengths, weaknesses, and environmental opportunities and threats has led to the approaches to the precise strategies and, finally, the choice of strategy that takes place through an interactive process in a dynamic environment.
It also provides information about both external and internal environments in a structured format where it's possible to compare external opportunities and threats with internal strengths and weaknesses.
This supports matching in external and internal environments so that strategies can come out with a suitable strategy by developing a certain pattern of relationships:
high opportunities and high strengths,
high opportunities and low strengths,
high threats and high strengths, and
high threats and low strengths.
Strategies face major problems when an organization cannot be matched within the four patterns: an organization may have powerful strengths and major weaknesses considering the critical success factors, several opportunities, and some threats.
At this point, SWOT analysis guides the strategies to think about the overall position of an organization that helps to identify the major purpose of the strategy under focus.
Characteristics of SWOT Analysis
Mainly focuses on the four major elements allowing companies to identify the forces influencing a strategy, action, or initiative; knowing the helpful and harmful elements can enable companies more effectively to communicate what parts of elements need to be reorganized.
An individual on an analysis creates a table and splits it into four columns to list each element side by side for comparison. Strengths and weaknesses won't match listed opportunities and threats directly; although they correlate, they're being tied together.
For instance, Billy Bauer, managing director of Royce Leather, stated that pairing external threats with internal weakness can highlight the most serious issues of a company.
When an individual identifies the risks, they can then decide whether it is appropriate to eliminate the internal weakness by assigning the company resources to fix the problems or to reduce the external threats by abandoning the threatened area of business and meeting it after strengthening a business.
SWOT Analysis - Internal and External Factors
It is mainly divided into two categories - internal and external factors. Strength and weakness are backward-looking, and Opportunities and Threats are forward-looking.
It enables us to build a bridge between the strategic alternatives that are going to be generated and what the company has accomplished to date.
These are the strengths and weaknesses of a company. These are resources and experiences readily available.
Internal factors include
Financial resources (sources of income and investment opportunities)
Physical resources (location, facilities, and equipment)
Human resources (employees, volunteers, and target audience)
Access to natural resources, trademarks, patents, and copyrights
Current processes (employee program, department hierarchy, and software systems like CRM and Accounting software)
Everything You Need To Break into Investment Banking
Sign Up to The Insider's Guide on How to Land the Most Prestigious Jobs on Wall Street.
These are opportunities and threats to the company. It influences and affects every company, individual, and organization, whether directly or indirectly.
External factors include:
Market trends (new products, technological advancements, and shifts in audience needs)
Economic trends (local, national and international financial trends)
Funding (donations and other sources)
Relationships with suppliers and partners
Political, environmental and economic regulations
A Visual Overview of the SWOT Analysis
Strategies prepare a SWOT analysis as a square segment into four quadrants, each dividing into an element of SWOT.
This provides an overview of a company's position; although all the points under the particular heading may not be equally important, they present a key insight into the balance of opportunities and threats.
An inherent capability of the organization that can be used to gain a strategic advantage over its competitors. It explains what separates it from its competitors and what an organization excels at.
For example, a hedge fund may have created a proprietary trading strategy that returns market-beating results and then decided on how to use those results to attract new investors.
An inherent limitation of the organization creates a strategic disadvantage to it. It stops an organization from functioning at its optimum level. There are areas where a business needs to improve to remain competitive.
For example, a weak brand, lack of capital, and an inadequate supply chain.
A favorable condition in the organization's environment will enable it to strengthen its position. For example, if a country's tariffs are cut, a car manufacturer can export its cars into new markets and increase sales and market share.
An unfavorable condition in the organizational environment causes a risk for or damage to (harmful) the organization's position. It prevents the company from reaching the desired goals, its mission, or creating values.
For example, a drought is a threat to the wheat-producing companies, as it destroys or reduces crop yield. Others are the rising cost of materials, increasing competition, and labor of supply.
Everything You Need To Break into Hedge Funds
Sign Up to The Insider's Guide on How to Land the Most Prestigious Buyside Roles on Wall Street.
How To Use SWOT Analysis
By using SWOT analysis, you can assess an organization's current position before you even decide to perform any new strategy.
Firstly find out what's working well and what's not. Examine where you want to go, how you might get there, and what might get in your way.
Once you've examined all four elements, you'll need to build on your strength, boost your weaker areas, exploit every opportunity, and head off any threats.
In fact, by doing so, you'll face having a long list of conceivable actions, but before you go forth, make sure to create your ideas further.
Look for possible links between the quadrants of your matrix you can make. To cite an example, you can use some of your strengths to open up different opportunities, and even more, opportunities will become open to you by eliminating some of your weaknesses.
Finally, it's time to restructure each point to make your comparisons clearer, eliminate and prioritize your thoughts in the right idealogy, and focus time and money on the most significant and impactful ones.
For instance, only accept precise, verifiable statements such as the cost advantage of $30/ton in referring to raw material X, rather than better value for money.
What occurs inside the company serves as a great source of information for the strengths and weaknesses.
Possible questions that can be listed:
What are we performing the best? > Strength
What is our strongest asset? > Strength
What are our detractors? > Weakness
What are our lowest-performing product lines? > Weakness
What occurs outside the company is equally important to the success of a company as internal factors.
Possible questions that can be listed:
What trends are evident in the marketplace? > Opportunity
What demographics are we not targeting? > Opportunity
How many competitors exist, and what is their market share? > Threat
Are there new regulations that could harm our products or operations? > Threat
Example of SWOT
Let's dive into a start-up consultancy that wants to have a clear picture of its present situation, to decide on future strategic growth. The team gathers and prepares a SWOT analysis.
Here in the analysis of a startup consultant, their main strengths lie in the ability to understand quickly, technical expertise, and low overheads. It offers excellent customer service to a small client base.
The company's weaknesses are also related to its size. It will need to train and improve the skills of the staff. It also needs to focus on the retention of key members; else, they'll lose them.
The opportunities offer rapid response, good value, and services to the local business and the local government.
The company is likely to be the first to market with new products and services, given that its competitors are slow in producing.
In threats, it is required to update changes in technology and also needs to keep an eye on its competitors, given its vulnerability to large-scale changes in the market.
The business needs to focus on marketing selected industry websites to get the best possible market on a small advertising budget.
Everything You Need To Master DCF Modeling
To Help You Thrive in the Most Prestigious Jobs on Wall Street.
TOWS matrix is a framework to create, compare, decide and access business strategies. It securitizes a business from an approach that recommends marketing and administration.
TOWS stands for Threats, Opportunities, Weaknesses, and Strengths.
Most people get it wrong, assuming the difference between SWOT and TOWS matrix is just the rearrangement of the two words.
The difference between SWOT and TOWS from a practical point of view is that SWOT emphasizes the internal environment (Strengths and Weaknesses) while TOWS focuses on the external environment (Opportunities and Treats).
The external factor, such as the nature of a market, competition, government policies, changing preferences, and fluctuating rates, and the internal environment consists of processes, HR policies, goals and objectives, and other factors.
An organization's internal strengths and weaknesses with external opportunities and threats are integral to the evaluation process of the TOWS matrix in strategic management.
1. Strength and Opportunity (SO)
Strength and Opportunity (SO) or Maxi-Maxi strategy make use of internal strengths to maximize the use of external opportunities available to an organization.
2. Strength and Threats (ST)
Strength and Threats (ST) or Maxi-Mini strategy means the use of internal strengths is maximized for a business, and the external threats are minimized by the use of those strengths.
3. Weakness and Opportunities (WO)
Weakness and Opportunities (WO) or Mini-Maxi strategy aims to minimize the weaknesses of an organization and maximize opportunities. This strategy updates internal weaknesses by using eternal opportunities.
4. Weakness and Threats (WT)
The Weakness and Threats (WT) or mini-mini strategy aims to minimize weaknesses and threats.
Example of TOWS Matrix
A representation of all four elements of the TOWS matrix on Apple Inc.
High standards of products and services cause it to be the most trusted brand among others.
Differentiated by its strong brand image.
The organization has high profitability and liquidity owing to its massive financial strength.
The supply chain is highly worldwide and innovative.
Premium and efficient products guarantee high sales, profit margins, and a loyal customer base.
Prices are high and don't aim to compete with the other brands.
The range of products is narrow.
Products and services are exclusive.
Non-compatible with the other brands.
Irrespective of their price, demand for newer electronic gadgets, especially smartphones, is constantly growing.
Competitors keep emerging and challenging.
Manufacturing costs are constantly rising.
Systems (PC) sales have fallen, which has affected its market share.
Here, the article on the TOWS matrix of Apple Inc. will put all these elements in the matrix to analyze each strategy of the matrix.
TOWS matrix is a relatively simple yet useful tool when generating strategic options.
From this article, we understood the meaning of TOWS analysis: it could allow managers to make suitable decisions in seizing opportunities and minimizing the impact of weaknesses and threats.
Everything You Need To Build Your Accounting Skills
To Help You Thrive in the Most Flexible Job in the World.
Researched and authored by Savan Sabu | LinkedIn
Edited by Ka Chun CHIU | LinkedIn
To continue learning and advancing your career, check out these additional helpful WSO resources:
or Want to Sign up with your social account?